Edition 2020 Ninth edition

2
:
"More widely, however, the demand for asset valuations increased significantly as 
the property boom took hold and reliance on informal valuation standards, such as 
'desktop' and 'drive-by' valuations, became more prevalent. These did not involve any 
physical inspection of the property, but were a limited (and sometimes fully auto-
mated or computer generated) process of estimating value. A Central Bank review 
of financial institutions found that many used these informal valuations as if they 
were formal valuations. 
 
[74 — Central Bank Report, Valuation Processes in the Banking Crisis — Lessons Learned — 
Guiding the Future, 18 December 2012, PUB00252-008]
 
1 
http://www.tegova.org/data/bin/a591190c05b2c3_Geoge_Matysiak_Valuation_Report.pdf
2 
https://inquiries.oireachtas.ie/banking/wp-content/uploads/2016/01/02106-HOI-BE-Report-Volume1.pdf

---

European Valuation Standards 2020
IV. - EVIP 7: Advanced Statistical Models
291
 A number of developers gave evidence that they continued to rely on profession-
al valuations.
Valuations exert significant impact on a financial institution's credit risk manage-
ment. As mitigation against risk, it is imperative that the valuation process is robust 
and that the value attributed to the underlying assets can be relied upon when fully 
assessing the risk of a credit decision or the ongoing management of the loan. For 
that reason a reliable valuation document is central to the credit risk decision." 
 
[75 — Central Bank Report, Valuation Processes in the Banking Crisis — Lessons Learned — 
Guiding the Future, 18 December 2012, PUB00252-016]
2.4. 
As they can only work by projecting forward from past data, they are likely to be 
pro-cyclical in effect at points where the relevant market is turning.
2.5. 
These intrinsic drawbacks and their contribution to the financial crisis inspired the 
restrictions on use of AVMs laid down by the EU legislator.
3. Commentary
3.1. 
" 209. At the point of origination, institutions should ensure that the value of all im-
movable property collateral for loans to consumers and micro, small, medi-
um-sized and large enterprises is assessed by an internal or external valuer 
using full visit with internal and external assessment of the property."
3.1.1. 
This is the default principle.
3.2. 
"210. As a derogation from paragraph 209, for the purposes of a valuation of residen-
tial real estate in well-developed and mature property markets, the value may 
be assessed by means of a desktop valuation, carried out by an internal or ex-
ternal valuer and supported by advanced statistical models. The valuer remains 
responsible for the valuation, while the advanced statistical models should be 
used as supporting tools, meeting the conditions set out in Section 7.4, and 
including a confidence measure to indicate the robustness of the value pro-
posal and other relevant property-specific information. In this case, the value 
proposal should be assessed, reviewed and approved by the internal or external 
valuer, who should understand all inputs and assumptions considered in the 
model. If the confidence measure in the supporting advanced statistical model 
indicates low robustness, and/or other property-specific information gives rise 
to uncertainty about the value proposal, the valuer should choose a valuation 
method other than desktop valuation."

---

292
IV. - EVIP 7: Advanced Statistical Models
European Valuation Standards 2020
3.2.1. 
This is a derogation from the default principle, allowed only under three cumula-
tive conditions:
•
It is allowed only for residential real estate. All other forms of real estate require 
full visit with internal and external assessment of the property;
•
The advanced statistical models are never sufficient by themselves. They are 
restricted to serving as supporting tools for a valuer carrying out a desktop 
valuation and who remains responsible for the valuation;
•
If the AVM's obligatory confidence measure is not robust and/or other prop-
erty-specific information gives rise to uncertainty about the AVM's value "pro-
posal", then the valuer "should choose a valuation method other than desktop 
valuation" which necessarily means either a full visit with internal and external 
assessment of the property or a drive-by.
3.3. 
"225. When the conditions for a review in accordance with Article 208(3)(b) of Reg-
ulation (EU) No 575/2013 are met, institutions should update the value of the 
immovable property collateral by means of a revaluation carried out by a valuer 
who is potentially supported by appropriate advanced statistical models that 
meet the conditions set out in Section 7.4 and account for individual character-
istics of the property and geographical area. Institutions should not use these 
models as the sole means of the revaluation."
3.3.1. 
The reference is to the Capital Requirements Regulation and review of the valua-
tion "when information available to institutions indicates that the value of the prop-
erty may have declined materially relative to general market prices".